Recently I had the opportunity to learn about a new initiative by a large debt buyer and collector, Encore Capital Group. Encore is actually working hard to help consumers. And I’m sure when you read that you will be cynical. I was at first.
But the changes Encore is making will assist consumers with old debt to get back on their feet and have good credit again, faster. Encore sees the current credit bureau reporting of debts they deal with as basically unfair for many. They want to do something about it to help people. Will the Encore efforts also help them to collect more, maybe, but hands down the real winner here is the consumer in collections.
Currently the credit report landscape is a total mess for consumers with old debt. Original creditors are selling off old debt and often silently removing it without permission from credit reports, which sounds like a good thing. But when this old debt is purchased the new debt buyer is reporting it to the credit bureaus and is now left holding the bag on how to deal with it.
Current law says a delinquent debt is reported on a consumer credit report for up to seven years and 180 days from the time it last went delinquent. In practice the credit bureaus remove this old debt right around the seven year mark.
As it stands today, a consumer can pay off or settle an old debt and the history of that can sit on the credit report for a long time and negatively impact the credit score. The whole reason things are reported for seven years has no real basis on logic or need. It was a number basically pulled out of the air. It has little reasoning behind it. So if you are behind on a debt that is two years old and pay it off, that account will sit for another five years on your credit report.
Sure, some current credit scoring models don’t put much weight into those old accounts but most creditors don’t use the new scoring model.
Encore Capital Group has stepped forward with a new way to deal with these old accounts. And how are they going to help? Well the answer is so simply brilliant. They are just going to stop reporting them and delete them from credit reports.
If the old accounts are removed from the credit report after two years of delinquency and payment, then no credit scoring model will factor them in. All consumers will win.
And many might not be aware but Encore will settle the old debt for less than full balance, depending on your personal financial situation. People will not need to repay the full balance to get the account to timeout and be removed. But to be removed the account with Encore must be paid in full or settled in full.
This new across the board strategy is ingenious. It avoids the entire “pay to delete” effort that some consumers try to engage in. Some people pitch if they pay the debt then they want it removed from the credit report. But there are a whole train car of reasons why that can’t be done.
It also eliminates the need for credit repair and other debt relief tricks to try and get old debts removed.
For Encore it also helps to eliminate five years of wasted manpower for needless and repetitive debt validation efforts. There is some win in this for Encore but the bigger benefit will be immediately received by consumers who have debts with Encore Capital Group. Companies that are part of Encore include Midland Credit Management, Midland Funding, Asset Acceptance, and Atlantic Credit and Finance.
The hope is this effort by Encore will be embraced by others in the industry and become the law of the land. If so, this will give consumers a more realistic chance of getting a fresh start after a financial hiccup. It’s a win for consumers and also for the forward thinking people of Encore.
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